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Monday, 29 February 16
LOSS OF EARNINGS IN THE WAKE OF A COLLISION - GARD
 KNOWLEDGE TO ELEVATE
A shipowner’s loss of earnings can form a significant part of a collision claim. Awareness of the ways of calculating loss of earnings claims can be useful in both presenting and challenging this type of claim. This Gard Insight looks at some general principles and methods applied by the courts.
A recent Gard example
A product tanker was hit by a bulker while at berth. Although the extent of the physical repairs – and therefore the repair costs – were relatively limited, the damaged tanks required stainless steel plates which had to be specially ordered. Long lead times led to a significant loss of earnings. As owners were able to document this loss with care and precision, leaving little room for doubt, the case against the owners of the bulker was settled quickly and amicably.
Basic principles
A claimant not only has the burden of proving that it has lost earnings as a result of the collision but also that it has suffered an actual loss. The fact that a ship has been unable to trade due to repairs being carried out is generally not enough, though it raises an obvious presumption that the shipowner has indeed suffered some sort of loss.
In the majority of jurisdictions, the principle of restitutio in integrum governs the measure of damages. This means that a shipowner who suffers a loss of earnings due to the negligence of another party will be put back into the position it would have been but for the negligence. Therefore, the shipowner must prove what the ship would have earned had the collision not occurred. This means that if the repairs are performed during a pre-arranged dry-docking period for example – there will be no loss.
The methods used to prove the loss depend on the facts of each case and one approach is not necessarily better than another. The optimal way is largely dependent on the trade patterns of the ship at the relevant time.
Ships on time charter
If a ship is damaged in a collision it will usually go off-hire until it has been repaired and able to function again under the terms of the charterparty. The shipowner can rely on specific off-hire statements and invoices from charterers. The loss will consist of:
- a fixed amount per day for the total time the ship is off-hire
- the bunkers consumed during the off-hire period, and
- any additional charges the time charterer may have incurred.
If the time charter has been justifiably cancelled as a result of the unavailability of the ship, the loss of earnings from that point onwards will be the difference between what the ship would have earned under the cancelled charter and what was actually earned during the same period.
Ships trading on the spot market
For a ship trading on the spot market, the approach is more flexible to calculate its loss of earnings. The starting point will be the total number of days the ship is unable to trade due to repairs, including removal time to the shipyard. However, losses may extend beyond the actual repair period, especially when the market has fallen in the meantime. If a shipowner can prove that it lost an actual fixture on the spot market due to a collision and necessary repairs, the potential net income from that fixture will be compared with the ship’s actual net income until the date the lost fixture would have ended. This is known in some jurisdictions as the time equalisation method, most recently approved in the English case of THE ASTIPALAIA [2014] EWHC 120.
For situations where a ship trading on the spot market is not fixed for her next voyage, the way to calculate the loss will depend on whether the ship was operating in an established or specialist trade.
For established trades such as the VLCC trade, fixture data is readily available throughout the year. It is a relatively simple exercise for a broker to work out what a VLCC would have earned at the relevant World Scale rates for a given period. Provided the ship would have obtained employment with a reasonable degree of certainty, the estimated charter earnings will be compared with the ship’s actual earnings for the period using the time equalisation method.
For specialised trades and trading patterns with little continuity, market data will be less readily available and reliable, so the loss of earnings calculation in each case will be more fact specific. In these cases, the best approach may be to present the average time charter equivalent earnings of the ship for a limited period around the time of collision, e.g. the casualty voyage and the voyages preceding and following the casualty. For some trades, it may be relevant to present income statements for even longer periods, however, the more remote the evidence, the more difficult it will be to prove that the figures are a true representation of the loss.
In the Norwegian collision case of Rana Frakt v ROBAS (LG-2013-173128) one party based its loss of earnings on two annual audited income statements, however the Court of Appeal made a discretionary reduction of about 33 per cent due to the lack of evidence relating to tangible fixtures the ship would have been engaged in during the period of repairs. That said, the mere fact that the loss of earnings cannot be quantified exactly will not be fatal to a claim.
FFO claims
Loss of earnings claims can arise in other contexts, e.g. where a ship damages a quay or shore based crane and renders part of a terminal unusable. The underlying assumptions and calculations involved can be complex and the appointment of a forensic accountant with knowledge of the local accountancy rules and tax law may very well be necessary in order to properly defend a shipowner’s position.
Checklist
Whether claiming or challenging loss of earnings claims, the following should be submitted:
Evidence of the total period claimed for, such as:
– Master’s statement of facts
– copies of the deck log
– the off-hire statements from charterers.
A summary of the daily net loss of earnings for the total period and the underlying documentation relied upon, such as:
– the charterparty and recap
– the off-hire invoice
– a statement from a broker of potential earnings or income statements where a time charter equivalent rate per day is arrived at.
Evidence of any mitigation, e.g. that the claimant:
– has chosen the quickest and most reasonable repair option, or
– has used other ships in its fleet to perform the contractual obligations of the damaged ship.
Evidence of the average utilisation of the ship. For ships actively trading only 80 per cent of the time, it is clearly unreasonable to claim a loss equating to 100 per cent utilisation during the period of repairs.
Final note
It is well worth spending time and effort in presenting loss of earnings claims in a clear and unambiguous manner, so that both parties understand the figures presented and the assumptions behind them. This can help achieve a quick settlement in a collision dispute.
Source: GARD
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Monday, 07 March 16
INDONESIAN 5700 GAR COAL INDEX DECLINE $0.05 A TON WEEK OVER WEEK
COALspot.com: Average 5000 GAR coal index of Indonesian origin decline 0.28 percent week over week to averaging $38.66 per ton on this past Friday, ...
Monday, 07 March 16
FREIGHT MARKET MOVING POSITIVE; ALL SEGMENTS EXCEPT CAPE SHOWING A FIRM TREND
COALspot.com: The freight market was steady this past week and showing a firm trend for all segments except for Cape index.
The Baltic Dry Ind ...
Friday, 04 March 16
GLOBAL ECONOMY'S JITTERS ARE SLOWING DOWN SHIPPING EVEN FURTHER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The global economy’s shaky condition to say the least is now hampering growth and as a result demand for shipping is slowing down, something ...
Friday, 04 March 16
U.S. YEAR-TO-DATE COAL PRODUCTION TOTALED 109.3 MMST; 30.2% LOWER THAN THE COMPARABLE YEAR-TO-DATE COAL PRODUCTION IN 2015 - EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 13.1 million shor ...
Thursday, 03 March 16
INDIA'S BUDGET NOT ENOUGH TO BOOST STEELMAKERS' PROFITABILITY - FITCH RATINGS
COALspot.com: Fitch Ratings says that increase in proposed infrastructure spending in India's latest government budget is unlikely to provide a ...
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- Manunggal Multi Energi - Indonesia
- GVK Power & Infra Limited - India
- McConnell Dowell - Australia
- CNBM International Corporation - China
- Dalmia Cement Bharat India
- Metalloyd Limited - United Kingdom
- Alfred C Toepfer International GmbH - Germany
- Ministry of Transport, Egypt
- London Commodity Brokers - England
- Semirara Mining and Power Corporation, Philippines
- VISA Power Limited - India
- Siam City Cement - Thailand
- Kaltim Prima Coal - Indonesia
- New Zealand Coal & Carbon
- Vijayanagar Sugar Pvt Ltd - India
- The Treasury - Australian Government
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Ambuja Cements Ltd - India
- Global Business Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Oldendorff Carriers - Singapore
- Minerals Council of Australia
- Meenaskhi Energy Private Limited - India
- Sakthi Sugars Limited - India
- Borneo Indobara - Indonesia
- The State Trading Corporation of India Ltd
- Romanian Commodities Exchange
- Indian Energy Exchange, India
- Orica Australia Pty. Ltd.
- Electricity Authority, New Zealand
- Thai Mozambique Logistica
- Kumho Petrochemical, South Korea
- Grasim Industreis Ltd - India
- Simpson Spence & Young - Indonesia
- IEA Clean Coal Centre - UK
- Essar Steel Hazira Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Central Electricity Authority - India
- Uttam Galva Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Ceylon Electricity Board - Sri Lanka
- PTC India Limited - India
- Banpu Public Company Limited - Thailand
- Billiton Holdings Pty Ltd - Australia
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Global Coal Blending Company Limited - Australia
- ASAPP Information Group - India
- Directorate General of MIneral and Coal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- The University of Queensland
- Gujarat Sidhee Cement - India
- Commonwealth Bank - Australia
- Neyveli Lignite Corporation Ltd, - India
- IHS Mccloskey Coal Group - USA
- Indika Energy - Indonesia
- Bhatia International Limited - India
- Indonesian Coal Mining Association
- Iligan Light & Power Inc, Philippines
- Medco Energi Mining Internasional
- Tata Chemicals Ltd - India
- Sojitz Corporation - Japan
- Meralco Power Generation, Philippines
- Videocon Industries ltd - India
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Ind-Barath Power Infra Limited - India
- Toyota Tsusho Corporation, Japan
- Indogreen Group - Indonesia
- Globalindo Alam Lestari - Indonesia
- Eastern Coal Council - USA
- White Energy Company Limited
- GN Power Mariveles Coal Plant, Philippines
- LBH Netherlands Bv - Netherlands
- Bank of Tokyo Mitsubishi UFJ Ltd
- Intertek Mineral Services - Indonesia
- Port Waratah Coal Services - Australia
- Heidelberg Cement - Germany
- Deloitte Consulting - India
- Global Green Power PLC Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- SN Aboitiz Power Inc, Philippines
- Straits Asia Resources Limited - Singapore
- Chamber of Mines of South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sinarmas Energy and Mining - Indonesia
- Australian Coal Association
- Carbofer General Trading SA - India
- Economic Council, Georgia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- MS Steel International - UAE
- Riau Bara Harum - Indonesia
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Kobexindo Tractors - Indoneisa
- Planning Commission, India
- Gujarat Electricity Regulatory Commission - India
- Holcim Trading Pte Ltd - Singapore
- Vizag Seaport Private Limited - India
- Malabar Cements Ltd - India
- Orica Mining Services - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Madhucon Powers Ltd - India
- Kartika Selabumi Mining - Indonesia
- Timah Investasi Mineral - Indoneisa
- Electricity Generating Authority of Thailand
- San Jose City I Power Corp, Philippines
- Agrawal Coal Company - India
- Interocean Group of Companies - India
- Jorong Barutama Greston.PT - Indonesia
- Marubeni Corporation - India
- Ministry of Mines - Canada
- Formosa Plastics Group - Taiwan
- Petron Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Merrill Lynch Commodities Europe
- Coal and Oil Company - UAE
- Aditya Birla Group - India
- Directorate Of Revenue Intelligence - India
- GMR Energy Limited - India
- Singapore Mercantile Exchange
- Gujarat Mineral Development Corp Ltd - India
- Lanco Infratech Ltd - India
- Chettinad Cement Corporation Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Bayan Resources Tbk. - Indonesia
- Tamil Nadu electricity Board
- Bukit Asam (Persero) Tbk - Indonesia
- Georgia Ports Authority, United States
- Central Java Power - Indonesia
- Power Finance Corporation Ltd., India
- Indian Oil Corporation Limited
- Leighton Contractors Pty Ltd - Australia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Anglo American - United Kingdom
- Coastal Gujarat Power Limited - India
- Semirara Mining Corp, Philippines
- Edison Trading Spa - Italy
- Barasentosa Lestari - Indonesia
- Siam City Cement PLC, Thailand
- Price Waterhouse Coopers - Russia
- Kepco SPC Power Corporation, Philippines
- India Bulls Power Limited - India
- Attock Cement Pakistan Limited
- Sarangani Energy Corporation, Philippines
- Sical Logistics Limited - India
- Savvy Resources Ltd - HongKong
- PNOC Exploration Corporation - Philippines
- Bangladesh Power Developement Board
- Bukit Baiduri Energy - Indonesia
- Australian Commodity Traders Exchange
- Bulk Trading Sa - Switzerland
- Cement Manufacturers Association - India
- Binh Thuan Hamico - Vietnam
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Renaissance Capital - South Africa
- Parliament of New Zealand
- Sree Jayajothi Cements Limited - India
- Kapuas Tunggal Persada - Indonesia
- Star Paper Mills Limited - India
- SMG Consultants - Indonesia
- Bukit Makmur.PT - Indonesia
- Bhushan Steel Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Pendopo Energi Batubara - Indonesia
- Vedanta Resources Plc - India
- European Bulk Services B.V. - Netherlands
- Trasteel International SA, Italy
- Therma Luzon, Inc, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Bharathi Cement Corporation - India
- International Coal Ventures Pvt Ltd - India
- SMC Global Power, Philippines
- Coalindo Energy - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Maheswari Brothers Coal Limited - India
- Rio Tinto Coal - Australia
- Baramulti Group, Indonesia
- Rashtriya Ispat Nigam Limited - India
- Samtan Co., Ltd - South Korea
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercuria Energy - Indonesia
- Energy Development Corp, Philippines
- TeaM Sual Corporation - Philippines
- Bhoruka Overseas - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Mintek Dendrill Indonesia
- Energy Link Ltd, New Zealand
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Mercator Lines Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Karbindo Abesyapradhi - Indoneisa
- Independent Power Producers Association of India
- Wood Mackenzie - Singapore
- Kideco Jaya Agung - Indonesia
- Mjunction Services Limited - India
- Parry Sugars Refinery, India
- Thiess Contractors Indonesia
- Jindal Steel & Power Ltd - India
- Xindia Steels Limited - India
- Altura Mining Limited, Indonesia
- Larsen & Toubro Limited - India
- Makarim & Taira - Indonesia
- Aboitiz Power Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- ICICI Bank Limited - India
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